Frank Keating, president of the American Bankers Association, tells The Daily Ticker the test results are "really good news for stockholders of banks, borrowers, customers and depositors" because they show "the U.S. banking system is very strong."
That's not surprising since the strong stress test results presumably mean the Fed will approve plans for banks that passed to raise dividends and extend share buyback plans -- moves which benefit shareholders. The Fed is expected to issue those decisions on Wednesday.
Though Keating is pleased with the stress test results he's concerned that capital requirements could be too high in some cases. "You want to make sure the capital levels are appropriate and you don't starve lending by having too much capital."
But former FDIC Chair Sheila Bair says some banks still have too much leverage and are releasing too much money from loan reserves in order to boost earnings.
Keating's response: "The reality is banks have to be strong enough to lend but they also have to be able to lend."
Keating also weighed in on the latest Congressional proposal to phase out Fannie Mae (FNMA) and Freddie Mac (FMCC). The proposal, from Senators Tim Johnson (D-SD) and Mike Crapo (R-Idaho), would replace the mortgage giants with private entities but provide a government backstop for losses after the first 10%.
"I think it's rather interesting that Democrats and Republicans alike at this stage are willing to debate, discuss and are moving in the direction of phasing out Fannie and Freddie, and that is really quite a remarkable sea change, cultural change. "
So will we see GSE reform this year or next?
Keating expects the latest plan will pass the Senate. He's less certain about the House, but hopes it happens.
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